On Demand
Permits and starts show an uptick. What a difference a quarter makes. After a case of the holiday blahs, the supply side of the multifamily market was looking pretty darn good during first quarter 2006. “A lot of indicators are very, very positive,” says Hessam Nadji, managing director of research services at Marcus & Millichap. “Demand is holding up strongly, and the supply side has not overreacted.”
The only downside: when condomania takes a U-turn. By the beginning of 2006, condos accounted for a whopping 55 percent of multifamily starts, according to the Marcus & Millichap Supply Index. As the for-sale housing market cools, Nadji expects a fair amount of that product to convert back to the rental market in 2007, creating an oversupply of rental product in some markets. Nadji expects the problem will affect only about eight to 10 metro areas, such as Miami, Fort Lauderdale, Palm Beach, San Diego, Phoenix, and Las Vegas. “It won’t change the national dynamics,” he says.
Overall, the omens for multifamily supply look strong for this year. Job growth rose 30 percent over last year to add 590,000 positions in first quarter 2006. And as long as that continues, which Nadji and most economists expect, demand should hold steady, creating a healthy environment for multifamily owners and investors.
–Nichola Zaklan